DCIT (IT) 2(1)(1), MUMBAI V. CITIBANK OVERSEAS INVESTMENT CORPORATION, MUMBAI

ITA 6510/MUM/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5615 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Capital receipt; Capital Gains
• Section: 143(3)

Judgement Text

1 ITA NO.6510/MUM/2016 CO 69/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI PAWAN SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.6510/MUM/2016 (ASSESSMENT YEAR: 2011-12) DY.CIT-2(1)(1), MUMBAI VS CITIBANK OVERSEAS INVEST MENT CORPORATION, C/O DELOITTE HASKINS & SELLS, TOWER 3, 27 TH 32 ND FLOOR, INDIA BULLS COMPOUND, SENAPATI BAPAT MARG ELPHINSTONE (W), MUMBAI-400 013 PAN : AABCC5333N APPELLANT RESPONDEDNT C.O. 69/MUM/2018 (ARISING OUT OF I.T.A NO.6510/MUM/2016) (ASSESSMENT YEAR: 2011-12) CITIBANK OVERSEAS INVESTMENT CORPORATION, C/O DELOITTE HASKINS & SELLS, TOWER 3, 27 TH 32 ND FLOOR, INDIA BULLS COMPOUND, SENAPATI BAPAT MARG ELPHINSTONE (W), MUMBAI-400 013 VS DY.CIT-2(1)(1), MUMBAI CROSS OBJECTOR RESPONDEDNT ASSESSEE BY SHRI MADHUR AGARWAL REVDENUE BY SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 18-10-2018 DATE OF PRONOUNCEMENT 16-11-2018 2 ITA NO.6510/MUM/2016 CO 69/MUM/2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECT ION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-56, MUMBAI DATED 20-07-2016 AND THEY PERTAIN TO AY 2011-12. ITA NO.6510/MUM/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT FOREIG N EXCHANGE LOSS ON UNDERLYING FORWARD FOREIGN EXCHANGE CONTRACTS HAS T O BE CONSIDERED ON CAPITAL ACCOUNT AND HENCE, CONSTITUTE S A CAPITAL LOSS EVEN WHEN SUCH A CONTRACT IS NOT A CAPITAL ASSET? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT FOREIGN E XCHANGE LOSS ON UNDERLYING FORWARD FOREIGN EXCHANGE CONTRACTS IS NO T TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', EVEN WHEN FOR WARD FOREIGN EXCHANGE CONTRACTS IS NEITHER A CAPITAL ASSET NOR I T IS BUSINESS OF THE ASSESSEE TO ENTER INTO SUCH CONTRACTS? 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A NON RESIDENT COMPANY ENGAGED IN THE BUSINESS OF FOREIGN INSTITUTIONAL IN VESTORS IN INDIAN FINANCIAL MARKET, FILED ITS RETURN OF INCOME FOR AY 2011-12 O N 30-09-2011 DECLARING TOTAL INCOME AT NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THE DRAFT ASSESSMENT ORDER WAS ISSUED U/S 143(3) R.W.S. 144C(1) OF THE A CT ON 25-03-2015. IN RESPONSE TO THIS, THE ASSESSEE HAS FILED A LETTER O N 30-04-2015 STATING THAT THEY DID NOT PROPOSE TO FILE OBJECTIONS BEFORE THE DRP A GAINST DRAFT ASSESSMENT ORDER. ACCORDINGLY, THE ASSESSMENT HAS BEEN COMPLE TED U/S 143(3) R.W.S. 144C(3) OF THE INCOME-TAX ACT, 1961 DETERMINING TOT AL INCOME AT 3 ITA NO.6510/MUM/2016 CO 69/MUM/2018 RS.9,38,11,065 INTERALIA MAKING ADDITION TOWARDS GA IN ON CANCELLATION AND ROLLOVER OF FORWARD FOREIGN EXCHANGE CONTRACTS UNDE R THE HEAD INCOME FROM OTHER SOURCES AS AGAINST ASSESSEES CLAIM OF CAPIT AL RECEIPTS BEING NOT TAXABLE UNDER THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS STATED THA T GAIN ON FORWARD FOREIGN EXCHANGE CONTRACTS IS NEITHER TAXABLE UNDER THE HEA D CAPITAL GAINS NOR UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION BECAU SE SUCH RECEIPTS ARE CAPITAL IN NATURE, THEREFORE, NOT LIABLE TO TAX UND ER THE ACT. IT WAS FURTHER STATED THAT THE ISSUE HAS ALREADY BEEN CONSIDERED B Y THE ITAT FOR EARLIER YEARS AND HELD THAT GAIN FROM FORWARD FOREIGN EXCHANGE CO NTRACTS IS A KIND OF CAPITAL RECEIPTS AND LIABLE TO BE TAXED UNDER THE HEAD CAPI TAL GAINS, BUT NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD.CIT(A), A FTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DE CISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2001-02 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT GAIN ON FORWARD FOREIGN EXCHANGE CONTRACTS IS TAXABLE UNDER THE HEAD CAPITAL GAINS. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US AND THE ASSESSEE HAS FILED CROSS OBJECTIO N. 5. AT THE TIME OF HEARING, THE LD.AR FOR THE ASSESS EE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED I N FAVOUR OF THE ASSESSEE BY 4 ITA NO.6510/MUM/2016 CO 69/MUM/2018 SERIES OF DECISION OF ITAT, MUMBAI BENCHES IN ASSES SEES OWN CASE FROM AYS 2001-02 TO 2009-10 WHEREIN UNDER SIMILAR SET OF FAC TS AND CIRCUMSTANCES, THE ITAT HELD THAT GAIN DERIVED FROM FORWARD FOREIGN EX CHANGE CONTRACTS IS TO BE TREATED AS CAPITAL GAIN. THE LD.DR FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT FOR EARLIER YEARS. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ISSUE INVOLVED IN THIS APPEAL AS TO WH ETHER GAIN DERIVED FROM FORWARD FOREIGN EXCHANGE CONTRACTS IS ASSESSABLE UN DER THE HEAD CAPITAL GAIN OR UNDER THE HEAD INCOME FROM OTHER SOURCES, IS N O LONGER RES INTEGRA. THE CO-ORDINATE BENCHES OF ITAT IN ASSESSEES OWN CASE RIGHT FROM AY 2001-02 TO AY 2009-10 HAD CONSIDERED SIMILAR ISSUE. THE ITAT, IN ITA NO.5479/MUM/2014 FOR AY 2009-10 DATED 24-03-2017 HAS CONSIDERED SIMI LAR ISSUE AND BY FOLLOWING ITS EARLIER ORDERS, HELD THAT GAIN DERIVED FROM CAN CELLATION / ROLL OVER OF FORWARD FOREIGN EXCHANGE CONTRACTS IS TO BE TREATED AS CAPI TAL GAIN. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 4. AT THE OUTSET THE LEARNED AR SUBMITTED BEFORE U S THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES O WN CASE FOR A.Y 2001- 02, 2006-07 AND 2007-08, WHEREIN TRIBUNAL HAS HELD THAT INCOME ARISING FROM FORWARD EXCHANGE CONTRACT IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. THE LEARNED DR FAIRLY AGREED WITH THE AFORESAID SUB MISSIONS OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ITA NO.5479/MUM//2014 & CO NO.19/MUM/20 16 CITIBANK OVERSEAS INVESTMENT CORPORATION 4 YEARS AND IN ASSE SSEES OWN CASE FOR A.Y. 2001-02 IN ITA NO. 4436/MUM2005 THE TRIBUNAL V IDE ITS ORDER DATED 21.12.2005 HAS HELD THAT INCOME ARISING FROM FORWAR D FOREIGN EXCHANGE CONTRACT IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN S. THE SAME VIEW WAS REITERATED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2007-08 IN ITA 5 ITA NO.6510/MUM/2016 CO 69/MUM/2018 NO. 7044/MUM/2010 VIDE ORDER DATED 16.01.2013. RESP ECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE CO-ORDINATE BENCH, W E HOLD THAT THE GAINS ARISING FROM FORWARD FOREIGN EXCHANGE CONTRACT ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND NOT AS INCOME FROM OTHER S OURCES. HENCE, GROUNDS RAISED BY THE DEPARTMENT ON THIS ISSUE ARE DISMISSED. 7. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO- ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT GAIN ARISING FROM CANCELLATION / ROLL OVER OF FORWARD FOREIGN EXCHANG E CONTRACTS ARE ASSESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT AS INCOME F ROM OTHER SOURCES. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS, HAS RIGHTLY HELD THAT THE RECEIPTS IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN S. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A) AND HENCE, WE ARE INC LINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND DISMISS APPEAL FILED BY THE REVENU E. CO NO.69/MUM/2018 8. THE ASSESSEE HAS FILED CROSS OBJECTION BY TAKING A GROUND THAT RECEIPT ON CANCELLATION / ROLL OVER OF FORWARD FOREIGN EXCHANG E CONTRACTS SHOULD BE CONSIDERED AS CAPITAL RECEIPTS NOT EXIGIBLE TO TAX IN INDIA. AT THE TIME OF HEARING, THE LD.AR FOR THE ASSESSEE SUBMITTED THAT HE DID NOT WANT TO PRESS THE CROSS OBJECTION AS THE MATTER HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE. HENCE, WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE AS WITHDRAWN. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE AND T HE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. 6 ITA NO.6510/MUM/2016 CO 69/MUM/2018 ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2018. SD/- SD/- (PAWAN SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 16 TH NOVEMBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI